Coonan to review Telstra's USO commitment

$500 million shortfall

The burden on Telstra to foot the majority bill for the Universal Service Obligation (USO), an alleged $500 million shortfall, may be soon lifted according to the Federal Government, which will review the regulation for the 2008 to 2011 period.

The move comes in response to requests from Telstra to level the USO playing field, which demands telecommunications providers contribute a percentage of their revenue to the maintenance and development of standard telephone services such as payphones.

Telstra has argued that the cost of provisioning and maintaining the USO is too expensive, particularly in remote areas, and that its required contributions are unfairly high.

Figures from the Australian Communications and Media Authority (ACMA) show Telstra contributed 71 percent to the total funds of the 2002 to 2003 USO, while its nearest rival Optus coughed-up 16.6 percent and a further 75 carriers paid less than one percent.

Federal ICT minister Helen Coonan said the USO review will evaluate Telstra's claims that the regulation is imbalanced, noting that many countries such as the United Kingdom do not have such requirements.

"Telstra has argued that the amount its competitors contribute to the USO does not reflect their costs incurred providing the obligation, [and] the USO review will test this argument," Coonan said.

"Telstra is currently required to be the universal service provider in a greenfield estate even when another company wins the development contract to be the infrastructure provider."

Under existing policy, Telstra must be the USO provider in all circumstances which means the telco would lay the groundwork in a new estate regardless of whether or not it won the infrastructure contract.

Local analyst Paul Budde knocked back suggestions that the review of the 20 year-old legislation is a counter-balance to the |$1 billion-plus Australia Connected subsidy paid to foreign-owned Singtel to build wireless and ADSL2+ rural services.

"The review and the funds for the development of rural wireless infrastructure is ridiculous," Budde said.

"The USO regulation has been going on for 20 years and you can't look at it in isolation; it is old, and not ideal but its the best we have and the best we'll ever have so the review is built on updating it.

"Once the [remote] broadband networks have been kick-started, it will become commercially viable and will actually need less subsidy because it is easier to overlay commercial services on the infrastructure."

Coonan said she will revoke most of the requirements involved in accounting separation because operational separation addresses the same issues more effectively.

Telstra estimated it currently spends about 8,000 annual staff hours and about $1.1 million in annual labour and audit costs to meet its accounting separation requirements, which are tied to regulations forcing the company to offer separate wholesale and retail services.

"I have also decided to remove a range of regulations including the Digital Data Service Obligation and industry reporting on overhead cabling by carriers," Coonan said. The Digital Data Service Obligation is requires that Telstra ensures all Australians have access to a 64 kbps Internet service

A discussion paper for public comment on the USO review will be released shortly.

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